Your Year-End Financial To-Do List

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Last day of the year, calendar date December 31 for background
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By Kimberly Lankford

What should I do before the end of the year to help with my finances?

Here are 10 ways to take advantage of tax breaks, financial strategies and opportunities to boost your savings by year-end.

1. Add more money to your 401(k). You can contribute up to $17,500 to your 401(k) for 2013 ($23,000 if you're 50 or older or will be by the end of the year), and you have until Dec. 31 to reach that limit. You can't just add extra money into the account yourself; the pre-tax contributions must be made through payroll deduction. Ask your employer's payroll department what steps you need to take to increase your contributions starting with your next December payday. Some employers also let you contribute a lump sum directly from a year-end bonus, before the money is paid and taxed. See How to Increase 401(k) Contributions for more information about giving your retirement plan a boost at the end of the year.

2. Consider a Roth conversion. You have until Dec. 31 to convert money from a traditional IRA to a Roth for 2013. You'll pay taxes on the conversion, but you'll be able to withdraw the money tax-free from the Roth in retirement. Making a Roth conversion is a particularly good idea if your income was lower in 2013 than in previous years. Ted Sarenski, a CPA and financial planner in Syracuse, N.Y., recommends looking at your income each year and calculating how much you could convert without bumping any of the money into the next tax bracket. Spreading your conversions over several years, especially after you retire, can help you avoid having to take big required minimum distributions after age 70½, which could trigger taxes on your Social Security benefits. If you convert and later change your mind because your tax situation changes -- say, because you lose your job before the tax bill is due next year or your investments lose money -- you have until Oct. 15, 2014, to undo the conversion (called "recharacterization"). %VIRTUAL-article-sponsoredlinks%"You have almost a whole year to look at it and see if you made the right move or not," says Sarenski. If you do recharacterize, you'll get the money back that you paid in taxes, and you can reconvert later, ideally with a lower tax bill. For more information about recharacterization, see Do-Over for a Roth Conversion. For more information about Roth conversion strategies, see The Complexities of Roth Conversions and our Roth IRA Special Report.

3. Take your required minimum distributions. If you're older than 70½, you generally need to take required minimum distributions from traditional IRAs, 401(k)s and other retirement-savings plans by Dec. 31 (except for the year you turn 70½, when you're given a extension until April 1 to make your first withdrawal; also, you don't need to take RMDs from your current employer's 401(k) while you're still working). If you miss the deadline, the penalties can be big -- see IRS Cracks Down on Retirees Who Don't Take RMDs. If you haven't taken your RMD yet, contact your administrator soon so you have plenty of time to meet the Dec. 31 deadline. See Calculating Your Required Minimum Distributions and our Required Minimum Distribution Special Report for more information. Also keep in mind that people older than age 70½ can contribute up to $100,000 from their IRAs to charity this year, which counts as their RMD but doesn't boost their adjusted gross income. See Tax-Free Transfers From IRAs to Charity Still Allowed for details.

4. Make the most tax-effective charitable gifts. Giving money to charity before the end of the year is a great way to boost your deductions if you itemize. You can deduct all kinds of charitable contributions, including cash, stock and non-cash donations, such as the cost of ingredients you buy for a soup kitchen. Some giving strategies can stretch the tax benefits even further. For example, if you have highly appreciated stock you were planning on selling, consider giving the stock to the charity instead of cash. That way, you get a deduction for the full amount, but you avoid paying capital-gains taxes on the increase in value since you've owned it. See Charities: Give Stocks Instead for details. For a few ideas of ways you can give, see Expand Your Options for Charitable Giving, How to Set Up a Scholarship Fund and Donor-Advised Funds: Contribute Now, Donate Later.

5. Make energy-efficient home improvements. If you haven't claimed a tax credit of up to $500 in energy-efficient home improvements since 2006, you have until Dec. 31 to do so. The break applies to 10 percent of the purchase price (not installation costs) of certain insulation materials, energy-efficient windows (which have a $200 limit), external doors and skylights, and roofing materials. You can count both materials and labor costs for certain energy-efficient central air conditioners, electric heat pumps, biomass stoves and water heaters powered by an electric heat pump (up to $300 each, with a maximum credit of $500), or up to $150 for an eligible natural gas, propane or oil furnace or hot water boiler. For more information, see Time Is Running Out on Energy-Efficient Home Improvement Tax Credits.

6. Check the deadline for cleaning out your flexible spending account. Until recently, many people had to deplete their FSAs by Dec. 31 or lose whatever money was left in it. That meant December was a time of frantic spending as people raced to spend money at, say, the eye doctor or dentist. Recently, however, the U.S. Treasury Department and IRS changed the FSA rules to allow employers to let people carry over $500 in their FSAs from one year to the next (see Big Change to Flexible Spending Accounts for details). Some employers already offered a grace period until March 15, thanks to an earlier change in the rules by the IRS. But a few employers still require you to use the money by Dec. 31 or lose it. In that case, now is a good time to order contact lenses, visit the eye doctor or dentist, buy new glasses or prescription sunglasses, or pay for other eligible medical expenses. See 7 Smart Uses for Your Flex Account Money for some more ideas.

7. Open a solo 401(k) for self-employment income. A solo 401(k) is one of the best ways for self-employed people to save for retirement. You can contribute up to $17,500 ($23,000 if you are 50 or older) plus up to 20 percent of your net self-employment income, up to a maximum contribution of $51,000 for 2013. You have until April 15, 2014, to make contributions for 2013, but you have to open the account by Dec. 31 if you don't already have one. See How the Self-Employed Can Save for Retirement for details. Self-employed people should also time their equipment purchases and other expenses carefully over the next few weeks to make the most of the deductions for 2013. See Last-Minute Tax Breaks for the Self-Employed and Moonlighters for details.

8. Contribute to a 529 college-savings plan. This strategy is a win-win: The beneficiary of the account (for instance, your child, grandchild or the child of a friend) can use the money tax-free for college tuition, room and board, and fees. Plus, in many states, you get a state income tax deduction for your contribution. Many 529 plans require you to make your contributions by Dec. 31 to count for that tax year (although some give you until April 15 of the following year). For details, see SavingforCollege.com. Also see Tax Breaks for Grandparents Who Help With College Costs.

9. Buy health insurance on the exchanges. For coverage that takes effect on January 1, you must buy the policy before Dec. 23 (the deadline was extended from Dec. 15 because of the problems with HealthCare.gov). If your income is below 400 percent of the federal poverty level -- about $46,000 for an individual and $94,000 for a family of four -- you may qualify for a subsidy to help with the premiums. See Calculating the Health Insurance Subsidy for details. After a very rocky start, HealthCare.gov is working better, and many states that run their own exchanges have improved their websites, too. See Navigating Around the Obamacare Sign-Up Problems for more ways to sign up for coverage.

10. Take advantage of other tax breaks. If you were planning to sell stocks soon, pulling the trigger before December could make a difference in your tax bill. See 4 Year-End Moves to Trim Your 2013 Tax Bill and 12 Smart Tax Moves to Make Now for more information about timing your capital gains and losses and other tax moves to make before New Year's Eve.


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12 PHOTOS
Best States for Retirement Aren't the Ones You Might Think
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Your Year-End Financial To-Do List
Not only does it have a Florida-like climate, but Tennessee also boasts the second lowest cost of living in the country. Combined with a low tax burden and great access to medical care, Tennessee is ideal for retirees living on fixed incomes, Kahn said. The only downside: the state has one of the country's highest crime rates.

One of the state's oldest towns, Sevierville, Tenn. (pictured above), provides close access to a national park where retirees can picnic, hike and fish, and it's an easy drive to Knoxville.
Another balmy locale, the state has an average temperature of 66.7 degrees -- behind only Hawaii and Florida for warmest average climate. Louisiana residents also enjoy low taxes, above-average access to medical care and a relatively cheap cost of living. Like Tennessee, though, it suffers from a crime rate that is among the nation's highest.

It may not be a retirement hot spot, but Bankrate says it should be. The state has the country's lowest crime rate, and an estimated state and local tax burden of just 7.6% -- lower than every state but Alaska. The downside: with an average temperature of 46 degrees over the past 30 years, it's pretty darn cold there.

For small town lovers, Aberdeen, S.D., holds a renowned film festival and has a historic downtown that plays host to farmers markets, haunted walking tours and holiday parades.

Photo: Conspiracy of Happiness, Flickr.com

The Bluegrass State is one of many Appalachian states to dominate Bankrate's top 10. While it may not have Florida's sunny beaches, it does boast an extremely low cost of living, warmer-than-average temperatures and a below-average crime rate.

In Louisville, retirees can stay active by walking or biking on the Louisville Loop, a pedestrian path set to eventually cover more than 100 miles. The smaller town of Danville, Ky., meanwhile, is ideal for horse lovers.

Beyond its warm weather, Mississippi also provides cheap living costs and a lower tax burden. But retirees may want to choose where they live carefully: the state has a high crime rate and subpar access to medical care. It has only 178 doctors per every 100,000 residents -- almost 100 less than the national average.

Photo: Natalie Maynor, Flickr.com

This coastal state came in above average for most factors that Bankrate analyzed, including climate, access to healthcare and cost of living. Its crime rate is one of the lowest in the country, with only 2,446 property and violent crimes per 100,000 people.

An affordable college town, Lynchburg, Va. offers the beauty of the foothills of the Blue Ridge Mountains, as well as historic Civil War sites.

Another Appalachian state, West Virginia is boosted onto the list by low crime, a cheaper cost of living and above-average access to medical care. Still, it has a colder climate than some of the other states.
Warm temperatures, low state and local taxes and a relatively low cost of living all pushed Alabama into the top 10. Yet it suffers from below-average access to medical care and a relatively high crime rate, with 4,026 crimes per 100,000 people -- almost double that of Virginia.

Home to a campus of the University of Alabama, Huntsville, Ala. offers botanical gardens and nature preserves and 19th century architecture. Near the Georgia border, Fort Payne, Ala. is a quintessential small town with activities that include an annual fiddling convention and a stop at the "world's largest yard sale."

Beyond its cornfields, Nebraska offers excellent access to hospital care, a below-average crime rate and living costs among the country's cheapest. But with a lower than average temperature, it's another state for retirees who don't mind the cold.
Like neighboring South Dakota, this state is not for retirees looking for warm weather. But it does have the second lowest crime rate in the nation, a mild estimated tax burden of 8.9% and 5 hospital beds available for every 1,000 residents.
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